Your Kid Needs Good Credit In College

Jenny Beres writes for LendULink, which is on a mission to decrease the out of pocket cost of college. LendULink offers a free collegesavings program for parents of high school students with the added benefit of pre-qualifying them for low interest rate college loans, if or when needed.

Over the last 35 years, the cost of college has increased by over 1000%. LendULink was created with the realization that 71% of all undergraduates receive education loans and for many of these students, it’s their parents who are the ones borrowing. To learn more, visit us at LendULink – for college savings.

My first day of college was a credit card carnival.

Rows of credit card companies set up shop waiting to lure us newbies in with free tee shirts, travel mugs – and of course our first taste of financial freedom. Never mind the fact we didn’t have jobs and I still got lunch money from my dad. Want a Visa? Great! Sign here. Prefer Citibank? Fantastic. They’re giving away backpacks. Don’t think you’ll have any real income for about 6 years? No worries. Try Capital One.

And that’s how I found myself with a bruised FICO score and in a world of financial hurt that took five years of waitressing to unravel. Trust me, nothing pounds home a financial lesson more than “where’s my extra ranch?”

So, what I’m about to say is going to sound shocking. And it’s probably your biggest fear.

Your college kid needs a credit card.

What?

Graduating with zero credit just doesn’t cut it in our credit dependent society. It’s another, more innocent form of bad credit. After graduation your child needs a good credit score to qualify for a decent apartment, apply for a car loan or mortgage and even in some cases to land the job of his or her dreams. A credit score is how our society measures the responsibility of its citizens.

The good news? There are responsible, fairly risk-free ways for you to help your child build and maintain the good credit they need for an easier and financially secure transition into the real world. Here are a few of our favorites.

Start With The “Big Three”

Experian. Equifax. Transunion.

According to consumerfinance.gov you want to check these three heavyweights for any mistakes on your kid’s credit report (think SSN, correct spelling etc.) and make sure there aren’t any erroneous debts reported that could point to identify theft. The idea is to help your child start their journey into good credit on the right foot – and not unfairly pay the price for someone else’s mistakes and/or criminal activity.

PiggyBack

Do you have good credit? Why not consider giving your kids a leg up on their own credit by approving them as an authorized user on your card? Creditcards.com does acknowledge that this practice has been somewhat “controversial” but reminds parents since it’s now illegal for kids under the age of 21 to receive a credit card (thanks to the Credit CARD Act) without proof of income or a parent co-signer, this may be one of the easiest and fastest ways to start building credit.

Piggybacking allows you to substantially help your child’s credit grow – while allowing you to manage the account. Remember, it’s always important to sit down with your child and discuss expectations before you fork over a credit card. Talk openly about what establishing good credit means, why it’s important, and how much they’re allowed to charge per month. As your child progresses, have them make some of the payments on their own so they can earn more privileges and experience firsthand the fiscal responsibility of owning a card.

Get A Card

If your child is 21 or you don’t mind cosigning, getting them their own credit card is a great way to start building credit and card responsibility. US News recommends “applying for student credit cards, which are more forgiving on income and credit requirements, or store-branded credit cards, which often have low limits and low credit requirements as well.” Start with a small limit ($300-$500) and teach the importance of paying the card off everysingle month. Small limit. No balance. No interest. Make that your mantra – and stick to it.

Get The Right Card

There are plenty of cards out there that offer lots of bells and whistles in the form of rewards and cash back incentives. Take advantage of rewards where you can – but bear in mind this advice from Fox Business “these programs are best for those who pay off their balances each month. “Our advice? Start simply. You don’t need a ton of “extras” but you do need a financially savvy card with NO annual fees and a low APR.

Emergency Only

Sometimes it takes dollar signs to buy peace of mind and nobody is going to know that more than a parent whose kid is away at school. An “emergency only” credit card kills two birds with one stone. First, it helps your child establish good spending habits, while opening the floor for discussions about what constitutes an emergency and the importance of having a small debt-to limit ratio. Secondly, this gives parents some sanity knowing that if a large, unexpected expense comes up (like car maintenance) your kid won’t be car-less in the middle of the night, walking home from the mechanic. While good credit can’t protect your kids from everything, it can easily solve problems wherever Visa is accepted.

While it may seem scary (OK terrifying) to place a credit card in your child’s hand, it’s important to remember that building your college student’s credit is a joint endeavor. With a little hands-on guidance, detailed conversation and account management, your child has the chance to graduate not with just a degree – but with a perfect credit score to boot.